About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

ECB Indicates Preliminary Price of 13 Cents Per Instruction for T2S Settlement with 30 CSDs on Board

Subscribe to our newsletter

The European Central Bank (ECB) has released its preliminary price estimates for settlement on its Target2-Securities (T2S) settlement system, due to be launched in September 2014, which indicate that if all 30 European central securities depositories (CSDs) join, settlement could be as low as 13 cents per settlement instruction. This will therefore essentially split the cost of corporate actions processing from securities settlement and put pressure on the CSD community to bring down the costs of processing of this data accordingly.

T2S will offer delivery versus payment (DvP) settlement in central bank money in several European currencies and is aimed at reducing the cost of this process to a minimum for the region by running on a cost-recovery basis. Accordingly, its revenues will be aimed at covering only the costs of developing and running T2S, and there will be no profit margin. Thus adding more pressure to the corporate actions segment of the business to rationalise costs and increase CSD’s profitability.

However, the prices for the ECB’s system will be heavily impacted by the geographical reach of T2S and the initial prices that have recently been released by the central bank are still under assessment. Assuming that the central banks of Denmark, Sweden and Norway, which have indicated their interest, authorise settlement of their national currencies in T2S, the settlement price would likely be 20 cents. If all of the 30 European CSDs that have signed the T2S memorandum of understanding join T2S, including the respective currencies, the fee for DvP settlement charged by T2S would be much less at 13 cents per settlement instruction.

The end price for DvP settlement to CSD customers will be the T2S fee plus the fees CSDs charge for their own additional services and communication charges. The size of these additional charges will depend on how CSDs reshape their own infrastructures.

These prices are based on the T2S programme board’s reassessed costs for the establishment of the settlement system. The board expects costs of €256.4 million for the development of T2S, and €50.7 million on average per year during the running phase on the side of the four central banks which will develop the T2S business application and operate T2S: Deutsche Bundesbank, Banco de España, Banque de France, and Banca d’Italia – jointly referred to as the “4CB”.

The costs on the side of the ECB, which supports the T2S programme board and coordinates the relations with internal and external stakeholders (including the Corporate Actions Sub-group (CASG)), are expected to amount to €90.2 million over the development phase and €9.3 million on average per year during the running phase. In addition, the T2S programme board currently calculates interest costs for the financing of T2S of €67.5 million and a contingency provision of €36 million to cover costs related to the maintenance of the system, minor changes and potential liability claims.

The central bank is keen to stress the efficiencies and cost saving potential of T2S and says the DvP settlement fee could potentially fall below 15 cents in the future. However, this is predicated on countries such as the UK joining the system.

All of this will therefore highlight the relatively high cost of corporate actions processing further, and will likely result in a push within the market to drive these costs down. There are also a whole host of technical challenges that must be navigated in order for the CSDs to interoperate effectively with T2S, including the adoption of new corporate actions standards.

The CASG has been liaising with a group of European CSDs to gather input into its work around assessing the potential corporate actions processing issues within the ECB’s T2S system. To this end, the group’s 21 members have agreed three areas of concern: the model for the cross border securities and cash distributions in the context of T2S; the use of T2S dedicated cash accounts for corporate actions cash payments; and the T2S night time sequencing for corporate actions instructing and processing.

Subscribe to our newsletter

Related content

WEBINAR

Recorded Webinar: An Agile Approach to Investment Management Platforms for Private Markets and the Total Portfolio View

Data and operations professionals at private market institutions face significant data and analytical challenges managing private assets data. With investors clamouring for advice and analysis of private markets in their search for returns, investment managers are looking at ways to gain a more meaningful view of risk and performance across all asset types held by...

BLOG

Data Surge Argues for Enterprise-Grade Lineage: Webinar Review

The ingestion of growing volumes of data into financial institutions’ systems is posing a pressing challenge as data managers seek to optimise their data lineage, according to the latest A-Team Group webinar. Being able track data as it enters and is distributed within organisations is essential for prising the most value from that information. However,...

EVENT

TradingTech Briefing New York

Our TradingTech Briefing in New York is aimed at senior-level decision makers in trading technology, electronic execution, trading architecture and offers a day packed with insight from practitioners and from innovative suppliers happy to share their experiences in dealing with the enterprise challenges facing our marketplace.

GUIDE

Regulatory Data Handbook 2025 – Thirteenth Edition

Welcome to the thirteenth edition of A-Team Group’s Regulatory Data Handbook, a unique and practical guide to capital markets regulation, regulatory change, and the data and data management requirements of compliance across Europe, the UK, US and Asia-Pacific. This year’s edition lands at a moment of accelerating regulatory divergence and intensifying data focused supervision. Inside,...